Pierre Money Mart Blog

Understanding the auto loans:

Auto loans are offered by a number of lenders, all over the world. They are dedicated to capitalizing on the customer’s re-payment capacity in return for immediate finance to buy a vehicle. The rates and terms of the varied loan policies offered by the different auto loan companies are different and when you compare auto loans, it is important to ensure that the ground work and information assimilated is correct. You need to familiarize yourself with the different types of auto loans; the auto loans with a fixed interest rate and those with variable rates. While in the former, the rate of interest does not change throughout the life of the loan; in the latter, the rate keeps changing through the course of the loan.

The type of auto loan and the terms and conditions dominating the calculations are best understood via the fine print. It is very important to conduct prior research, relating to the types of loans and understanding the regulating factors for the finance extended. Auto loan is money loaned to enable you to purchase an automobile of your choice, according to the re-payment capacity you are able to prove to the lending company. In general, every auto loan is secured by placing the vehicle being purchased as collateral against the loan amount. This also means that in case of a default on payment, the vehicle is repossessed by the company.

Personal auto loans:

The auto loan could be researched and obtained according to your specific needs. The personal auto loan is one in which you personally take charge and responsibility for the loan to purchase the vehicle. The finance cannot be re-directed in this case to take care of any other expenses or purchases. The extended finance has to be used on the vehicle only and the automobile becomes the collateral to secure the loan. The repayment is made monthly, and the responsibility of loan lies with the person who signs on the dotted line. The onus is not shared by the company the individual works for or any other entity.

The auto loan procedure:

The auto loan procedure is a simple process that can be obtained by going to a lender and filling out an application form. You need to provide true and accurate details to the lender as the information, especially that on your job and income, helps the agent to work out details such as the rate of interest and the duration of the loan; not forgetting the repayment structure. The loan is in a way secured by the vehicle itself, and it hardly matters what your credit rating or score is! You could go through the procedure on you own or employ the assistance of a professional like a local auto loan specialist. Once you submit proof of your income and the details of the car that you have narrowed down your search to.

Auto loan access routes:

When choosing an auto loan, it is very important to check the terms and conditions carefully, to make sure that there are no hidden catches or extra costs involved. It is advisable never to accept the very first loan offer that comes your way. Comparison shopping online and in the various brick and mortar outlets helps to save, time, effort and most importantly – money! You need to check on the kind of finance you can avail of, the referrals on the company and the feed back from existent customers. There are sites that provide extensive access to many auto loan lenders.

Online quotes can be received and you can also apply online if you like what the mouse brings up! The quote should clearly indicate how much the loan will cost you, the interest you will be paying during the term of loan and the monthly payment. Auto loan can be accessed to finance a new or used car, depending on specific wants and your financial situation. You need to tread carefully because if you don’t meet the re-payment requirement, the lending company simply repossesses the automobile. There are many factors incorporated in the overall decision and final terms of an auto loan.

For those of us who are unfamiliar with the concept of car title loans, allow us to explain. At times, the best of us get strapped for cash; we may have no credit or bad credit (just like they say in the commercials), which keeps us from getting small loans from a bank or some other more traditional means. A title loan offers you cash from the lender, in return you sign over the title of your paid-for car to secure the loan. Typically, these loans are due back in full 30 days later. There’s no credit check and only minimal income verification. It sounds pretty straightforward, but borrowing from these places can lead to a repossession of your car and a whole lot of financial trouble.

Interest Rates That Make Credit Card Companies Blush

Car title loans have been lumped into the “predatory lending” category by many consumers. Non-profit organizations such as Consumer Federation of America (CFA) and the Center for Responsible Lending have issued detailed reports outlining some of the title loan issues that the public should be leery about.

One of the biggest issues with these loans is interest rates. Many people dislike credit card interest rates, which average between the mid to high teens for most Americans. Car title loan interest rates make complaining about credit rates seem ludicrous. Car title lenders are in a different category than credit card companies or banks and work around usury laws. Thus, title loan lenders are able to charge triple digit annual percentage rates (APRs). Yes, triple digits. It’s not an exaggeration to see 250% APR and higher on these car tile loans and only a handful of states have passed strict laws that prohibit exorbitant percentage rates. Even if your credit card company is charging you a high interest of 25% APR, it’s nothing compared to car title loans.

By federal law, title loan lenders have to disclose the interest rates in terms of the annual percentage. If you have to get a title loan, make sure they don’t just give you a quote of the monthly percentage rate, they have to give it to you as an APR. If they are unclear about the rates, which many can be, just know that a monthly rate of 25% is equivalent to a 300% APR.

Fees and Interest Only Payments

In addition to high interest, these car title loans usually include a number of fees that add up quickly. These include processing fees, document fees, late fees, origination fees and lien fees. Sometimes there is also a roadside assistance program that borrowers can purchase for another small fee. Some lenders have even gone so far as to make the roadside assistance mandatory The cost of all these fees can be anywhere from $80 to $115, even for a $500 loan. Most of these fees are legal, except one that lenders sometimes charge, the repossession fee. Lenders are not allowed to charge you to repossess your vehicle, but some still do.

As if high interest rates and a mountain of fees weren’t enough, lenders also give borrowers the option of interest-only payments for a set period of time. In these cases, the loans are usually set up for a longer period of time (compared to the typical 30 days) and the borrower can pay the interest only on the loan. These types of payments are called “balloon payments” where the borrower pays the interest of the loan each month and at the end of the term they still owe the full amount of the loan. The CFA reported that one woman paid $400 a month for seven months on an interest-only payment term for a $3,000 loan. After paying $2,800 in interest, she still owed the original $3,000 in the eighth month.

Rolling Over and Repossession

If you think most of the people who take out these loans pay them back in full after one month, think again. Because of the high interest and the fact that these lenders cater to low-income borrowers, many people aren’t able to pay back their loans in the 30-day period. This is called “rolling over” the loan. The terms of these loans are crafted to keep borrowers in a cycle of debt and bring customers either to the verge of repossession or to actual repossession. Not being able pay off the initial loan and then renewing it the next month costs borrowers even more money in interest, on top of the original amount they’ve already borrowed.

Let’s talk about repossession for minute. The CFA reported that, of the people they interviewed in their 2004 study, 75% had to give the title loan lenders a copy of their car keys. Some companies started the cars to see if they worked and took pictures of the vehicle even before a customer filled out the loan application. A company based in Arizona said they have GPS systems installed on the cars so they can track the cars and shut them off remotely if they don’t receive payment on time. That may be an extreme case, but these lenders take a customer’s promissory signature very seriously. If you can’t pay, they will come looking for you and your car.

The concerns for having your car repossessed are obvious. How do you get to work, drop off the kids at school, pick up groceries or go out on the weekends without a car? As if those scenarios weren’t bad enough, owning a car can be some people’s biggest financial asset. If the car is taken away, so goes the money it was worth. Some states have laws that force the lenders to pay you the difference of the loan once a lender has repossessed and sold your car, but some don’t. It is possible to default on the loan and not get any money back for your car, even if you only borrowed a few hundred dollars.

This occurs because car title loans are also over-secured. Typically, the maximum amount most lenders will give you is 25 to 50 percent of what your car is actually worth. However, if you can’t pay back the loan they may be able to sell your car and keep 100% of the profit. Some lenders won’t take possession of a vehicle but instead take the customer to court for the money. They then tack on court costs and finance charges on top of the existing loan amount.

Alternatives

Many car title loan lenders defend their business practices by saying they offer loans to people who would otherwise not be able to gain financial assistance. Although this may be partly true, signing over one of your most valuable assets for several hundred dollars is not the only option.

Some credit unions, like in North Carolina, have begun providing loans that have low interest rates of about 12% APR, a fixed 31-day repayment plan (to keep from rolling over a loan) and set up direct deposit out of the borrower’s paycheck so that loans will be paid off in full.

Other options may be paycheck cash advances from your employer, cash advances on credit cards, emergency community assistance, small consumer loans, or borrowing from friends or family. If you find yourself contemplating a car title loan, check out these alternative options and read the information for yourself at www.responsiblelending.org or www.consumerfed.org. If you still need to sign over your car for cash, educate yourself on the decision and know the possible repercussions of these types of loans.

CLEVELAND (AP) – The national credit crunch isn’t just squeezing the housing market, it’s also making auto loans more difficult.

Lenders are tightening their standards for car loans and that means bigger down payments and monthly installments. Some buyers looking for new mid-sized sedans are settling for used compact cars and others cannot even afford those.

CitiGroup, one of the nation’s biggest financial firms, has cut about 800 jobs in its auto lending business and says it plans to scale back the number of loans it offers.

“People with decent credit aren’t able to get the terms they think they should get,” said Michelle Primm, managing partner of the Cascade Auto Group in Cuyahoga Falls. Primm also represents women dealers in the Eastern U.S. for the National Automobile Dealers Association.

Mary Kay Bean, spokeswoman for JP Morgan Chase, said her company is requiring larger down payments than before and is limiting terms to six years for buyers with lower credit scores.

Bill Miller, a Cleveland State University student who works full-time as a mechanical engineer, said he tried to buy a car a few months ago and couldn’t get credit anywhere.

Miller’s status as a college student with a C-minus credit rating and some credit card debt told him getting a loan would be a challenge, but he didn’t think $7,000 for a used car would be out of line for him and his girlfriend.

“We were declined and declined and declined. I thought I rebuilt my credit, at least to the point of getting a car loan,” Miller said. “I guess not.”

Scott McKown, finance and insurance director for the Classic Auto Group in Mentor, said competition among lenders as recently as last year allowed dealerships to sell cars to people who typically couldn’t afford them.

“In a lot of cases, we’d say, ‘Boy, I hope the customer can pay this,”‘ McKown said. “These guys tended to specialize in that low end of the business.”

The loan squeeze could lead to lower sales in a year that has been one of the worst in a decade. As with the collapse of the mortgage business, lenders blame the tightening of auto credit terms on Wall Street.

Until this year, high-volume lenders would package their auto loans and sell them to investors, who would make their money from borrowers’ interest payments.

But with the collapse of the mortgage market, investors no longer are snapping up loans, especially those to buyers with questionable credit.

Even Ford Motor Credit, General Motors Acceptance Corp. and other lenders affiliated with automakers say they’re looking a little harder at each transaction. But those companies tend to stick to the best borrowers, so dealers said the effect of those changes has been minimal.

“When you have dealers that say they can get anybody a loan, they’re selling financing,” said Pat O’Brien, owner of Chevrolet dealerships in Medina, Willoughby and Westlake. “They’re not selling the car.”

“Bad Credit Car Loans”

One of the most common methods of purchasing a car with poor credit is with a “bad credit car loan“. You can acquire these loans through auto dealerships, online lenders, and high risk lenders. Typically these loans are available for anyone with a credit score below 600. People can find themselves in this situation after a divorce, after bankruptcy, if they have little credit, or if they have made poor financial decisions. The “bad credit car loans” are designed to protect the lender. They have higher interest rates than conventional auto loans. However, it is in your best interest to shop around for a bad credit car loan

Risks of Shopping around

There is a risk of shopping around for an auto loan. Submitting loan applications to several different companies will lower your credit score even more. It is in your best interest to find an organization that will find various Bad credit car loans for you, but only check your credit report one time.

Home Equity Loan

Another way to get auto financing with poor credit is with a home equity loan. The interest rate on a home equity loan is usually lower than the interest rate on a “bad credit car loan”. Another advantage is that the interest is tax deductible on a home equity loan. The one obvious disadvantage to this type of financing is that you are using your home as collateral. If you are not able to pay your loan, then you put your home in jeopardy.

Do not lose hope if you have poor credit. There are still options available to finance your car. Bad credit car loans, and home equity loans can help you achieve your goal of purchasing a new vehicle.

Are you one of the many people who have credit problems? Bad credit is more common than you think. The good news is, more and more lenders are now targeting consumers with bad credit.

Even if you have bad credit, you can still qualify for an auto loan…and it’s become easier and less humiliating now due to the wonders of the internet. You can apply online, and not have to put up with the unneeded stress of trying to get financed through the dealership.

Here’s how to buy a vehicle if you have bad credit…

Set up financing before even stepping onto the car lot. You can get “pre-approvals” from many online lenders. This way you know when you walk onto the first car lot exactly how much you can spend, and how much your monthly payments will be. The lenders will approve you for the loan, and mail you a voucher that you give to the dealership once you work the deal on the car you want. You simply fill in the amount borrowed (up to your pre-approved limit,) sign, send your signed contract into the lender, and you’re done.

In order to qualify for a bad credit car loan, lenders look at some specific things. They will want to see if you have sufficient income to cover your current bills, the loan payment you are about to commit to, as well as the costs of maintaining and insuring your new vehicle. Most lenders also prefer that you’ve held your current job for about a year, and that you’ve had a consistent home address.

It sounds a bit simplistic, but don’t take on any more of a car payment than you can afford. Use this opportunity to rebuild your credit…make your payments on time, and when your credit situation improves, you can get your loan refinanced at a lower interest rate.

Like with any other buying situation, it is best to compare rates among different lenders. Be careful not to apply at too many places though, as too many credit inquiries will have a negative effect on your credit score. Should you need any recommendations, please go to http://www.pierremoneymart.com

Good Luck to you in that new car.